On The Brink with Castle Island - Seth Priebatsch (Groma) on On-Chain Real-Estate (EP.466)

Episode Date: October 30, 2023

Seth Priebatsch, the founder and CEO of Groma joins the show. In this episode we discuss: Seth's entrepreneurial journey, including the founding story of LevelUp. His ambitions with the founding of Groma, a company building a real-estate backed cryptocurrency. The tokenization of real-world assets, including the steps that Groma is taking to launch a REIT security that will be represented on-chain. The choice to focus on multi-family-residential property as the initial backing of the Groma REIT. The regulatory landscape for digital asset securities in the United States. The prospects of other categories of real-world-assets and their eventual representation on-chain. To learn more about Groma, visit their website or follow Groma on X. Links mentioned: Groma on Republic. For a preview of the Groma whitepaper email [e-mail]

Today in the podcast, I set down with Seth Prebatch, the founder and CEO of Groma, a company building at the intersection of public blockchains and the real estate industry. Seth is a repeat founder who previously founded Level Up, a mobile ordering and mobile payments platform. His new business is Groma, which is focused on creating a real estate backed cryptocurrency that will be classified as a security. This was a fun episode that touched on the history of money, the real estate industry, and the regulatory landscape around securities on chain and more. So without further ado, here's my conversation with Seth Pre-Batch. Matt Walsh and Nick Carter are partners at Castle Island Ventures. All of these expressed by them

or the guests on this podcast are solely their opinions and do not reflect the opinions of Castle Island Ventures. Guests and host may maintain positions in the assets discussed in this podcast. You should not treat any opinion expressed by anyone on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of their personal opinion. This podcast is for informational purposes only. Brought down by Bad Mortgage Investments, Lehman, which has 25,000 employees, be liquidated. The federal government loans American International Group, AIG, $85 billion. This is a different kind of market, and the Fed is asleep. The federal government is stepping

it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more into Britain's ailing economy with a new round of quantitative easing. You print a couple trillion dollars and all of a sudden people start to worry. So out of this worry, we have something called the Bitcoin. Bitcoin. Seth, welcome to the podcast. We're doing this in person in a studio. It's the first time I've done this, I think, since COVID started with anyone other than Nick. So welcome to our studio. Awesome. Glad to be here. Well, excited to talk more about Groma. So full disclosure, we're an investor in Groma. So really excited to finally have you on the podcast. Why don't we start a little bit just about your entrepreneurial journey and what led you to Groma? Sure. So I got my start in real entrepreneurial activities as a kid. We'll fast forward through some of that. But I was definitely the kid running a lemonade stand out front, lived in downtown Boston, so nice place to run a lemonade stand, good real estate to start, really got things rolling when I was at Princeton, was there for only one year, so also full disclosure. Princeton attendee dropout is probably more accurate,

but during my freshman year, ended up pitching the business plan competition, which was really exciting, won that, and as all cool kids or want to be cool kids do, I dropped out and went through an incubator program called Dream Adventures, which was really the beginning of what was actually at the time scavenger, if you want to go way back into history, but pivoted very quickly into a restaurant technology company called Level Up. And that was the beginning of a serious startup activities for me. So you were what, 19 years old when you started, what became level up? Yeah, 18 or 19. It is the literal under a dorm bunk bed story. For those who I've met in person, and obviously, Matt, we spend a lot of time together. Let's call it fashion decision to have

Everything being bright orange was originally from that Princeton Business Plan competition where there were serious competitors and I wanted the judges to subconsciously like me. So I figured I'd wear orange. Princeton's a very bright orange school. All the slides were orange, put on a nice orange shirt, was chromatically aligned and ended up coming away with the win. Started as a joke, then just snowballed. And now three companies later, it's always got to be orange logos and everything from there. It's crazy to pivot a business. It's a really hard thing to do. A lot of people don't do it. A lot of people just shut down. So talk a little bit about, the move from Scavenger into Level Up.

So way back in history, Scavenger really started as a gaming company, a game layer on top of the world. Maybe if you want to be exceedingly generous to what the idea was, it was like a super early before its time iteration of Pokemon Go, but it was not that good and it was not that successful. And we had an interesting occurrence. This was 0809 time. And we raised a reasonable amount of money.

We're successful on that front, did not build a real business. and maybe nine-ish months in had to make the decision of, are we going to keep going down this path? Are we going to pivot aggressively into something new? And we actually went through a very tough time of four pivots. Level up, the version that became successful was actually Level Up D. That was our code name, which implies the correct existence of Level Up A, which was not very good, and Level Up B, which was not very good, and Level Up C, which was not

very good. And it was a really difficult time. We transparently almost went under, almost ran out of money, had to go through a couple of rounds of emergency fundraising, luckily successfully at the end. And then maybe two years in got our feet back underneath us and started building what became a mobile payment, mobile loyalty, mobile rewards product using a lot of the learnings from scavengers. The game mechanics, we reformulated those into loyalty programs and promotions, and then tied that into the commerce engine of mobile payments, then eventually mobile ordering and then eventually delivery.

But it was a multi-year path to go from flailing around a bit to something that was stable and reasonably successful. Did you know anything about restaurant technology when you pivoted into level up? I did not. I knew about game mechanics. I knew about behavior motivation. I knew that restaurants were low tech and there was a big theme back then. This was now eight, 10 years ago, of restaurants being the last wave of digitization. Everything was already going e-commerce, but restaurants weren't. And we viewed that as a real opportunity to build that commerce layer from the ground up with What was initially some fun baked into it, but then became loyalty promotions, obviously moved naturally into payments and eventually naturally into mobile ordering and delivery.

So obviously, you got this thing to escape velocity and then you're required by Grubhub. So what was that process like? So Level Up ended up being a good product market fit and we grew it successfully over many years. Eventually in 2018, we eclipsed north of a billion dollars in annual restaurant sales. And that was then a very real business. The Grubhubhub story, which was an amazing partnership, an amazing acquisition and still very good friends. Work with many of the level up Grubbers now at Groma, but very good friends with all of them.

That also has a fun acquisition story. We were a mobile ordering, mobile payments, mobile loyalty company working with big enterprise restaurants. We had two product market gaps. One was the ability to work at scale with small restaurants, and one was delivery. Delivery was becoming more and more of a thing. So I set up a meeting with the Grubhub team, went out to Chicago. met with them, had a great set of conversations, and at the end of the meeting, the then CEO, Matt Maloney, wonderful guy, said, we're really interested in partnering, but we'll probably

just buy you. And I laughed awkwardly because I'm a socially awkward person and thought that was both funny and a little awkward, and had totally interpreted it as a throwaway comment and a joke. And it was not. So a few weeks later, they sent along a term sheet, and we ended up over a series of months selling the business for just north of around $400 million plus or minus and merge the businesses together in 2018. And then that must have been a wild ride because you were at Grubhub running a big part of the operation during COVID. Yes. So we initially had intended to run Level Up as a standalone business within Grubhub. Best laid plans around that time, a lot of things started changing and we merged the business really tightly. A great merger story

at the time, Level Up was maybe 250 people. Grubhub was probably 500 or 600. And we really merged the cultures. 90 plus percent of the level up team stayed. the acquisition, in fact, through our second acquisition later on. And I ended up in the role of chief revenue and strategy officer leading a lot of the restaurant technology, marketing sales, advertising to consumers, making sure if your delivery was delicious and on time, I can take some credit for that. If it was soggy and late, send hate mail in the show notes, that was probably my fault as well. And then as you highlighted in 2019, it was a fairly smooth merger year. Beginning of 2020, things went topsy-turvy for all kinds of very complex and challenging reasons.

A forgotten bit of history now is that initially COVID was thought potentially to be foodborne. So we were at maybe a six or seven, eight billion dollar annual sales run rate. And that dropped to near zero in March of 2020 because it was a very concerning time. People were naturally as they should be concerned about health, safety, all things. We panic raised a bunch of money, sent everybody home, did our first big town hall over Zoom. reminded people to worry about the important things, family health, safety, but not worry about their job. We delivered a message of, hey, we actually have enough money to do payroll for many years. Even if we do no deliveries, you might end up being very bored. If it turns out this is foodborne,

we're not going to have a business for a while. We're talking with the CDC. And if they say, shut it down, we're not arguing. We're going to shut it down. Or it may not be foodborne, in which case we're actually a very important part of keeping the economy humming people safe at home, fed and we're going to be very busy. And thankfully, it turned out to be the second, and the business went vertical pretty much overnight. And then went vertical into another acquisition. Went vertical into another acquisition. So we then saw sales double, triple overnight, brought on board hundreds of thousands of new drivers. We're doing all kinds of creative things to get hand wipes, sanitization tools for our drivers, masks without impacting the healthcare pipeline.

So really a very, very busy time. We then got approached by Uber Eats and JustE Takeaway, both of them offered just north of $7 billion, and we ended up selling to JustEat takeaway, a big European conglomerate for three reasons. The very real reason is that was the right thing to do for the shareholders, and we had a lot of meetings about this, of course, and did our fiduciary duty. The reason that I was very pro JustEat Takeaway versus Uber Eats is it was an international firm looking to build their presence in the United States, and so they committed to keeping the entire team together, investing heavily in personnel, which they did. We were very concerned Uber might buy the company and just let everybody go, which they ended up buying postmates and did that. So I think

the concern was valid. And the third reason, bringing it all the way back to Princeton is just your takeaway as a Dutch company. So Grubhub at the time was Red Grub. And if you look at it now, it is now bright orange Grubhub, not quite the pantone that was the original level up one, but close enough. And we felt really good about that. Yeah, you stick with the orange. That's great. So during all of this period, simultaneously you're seeing Bitcoin gets created, probably around the time that you're leaving Princeton and starting the first version of Scavenger. When did you start to become aware of what was going on in the crypto ecosystem? So I probably have in some ways the least compelling intro to crypto story, which is I heard

about it very early, maybe comparatively early 2011, 2012, and was deeply skeptical and did not get involved. And to some degree, I'm still somewhat skeptical of certain elements of it. But I remember a really good friend, colleague, one of the very early team members of level up guy named Evan Corzon. Evan, if you're listening, hello. And he brought me the Bitcoin white paper and read it. And I said, ah, this is not for me. I don't think that's real. I don't think that works. This was probably 2011 or 2012. I believe he made a serious investment in Bitcoin. I've probably done very, very well off of that. I did not. And that is in retrospect, a significant mistake. I was then pretty skeptical through several of the hype cycles,

but was always fascinated by three things about the infrastructure that was built on. One was the technology itself was really cool. An open, accessible, composable database, just a neat technological thing to have. The second was the idea of decentralizing decision making. I'm fascinated by governance structures and how companies work, how governments themselves work, how economies work, and moving power from the center to the nodes was a very compelling idea and something that I really appreciated about the infrastructure. And the third was around incentive alignment. How do you coordinate large ecosystems across time and space without needing to communicate directly? And that's what economies do. That's what frankly, Bitcoin and many other blockchain

projects have found unique product market fits for. So it was always fascinated with that, but it took me a while to come around to actually finding a use case that I was compelled enough by to dive in myself. So I promise we'll get to Grom at some point, but there's a conversion story here of real estate and crypto blockchain. So what was your real estate path? you start investing privately in real estate? How did you even start to see the real estate as an opportunity? So the one thing that never really compelled me about Bitcoin and about some of the other blockchain projects was the Bits versus Adams Gap. And I'm very much an atoms guy. I like the real world, I suppose a lot of us do. And I like technology to impact the real world and things

like Bitcoin and purely digital infrastructure does impact the real world. It gets used by real people every day. But it was all just a little too abstract for me. And so when I started thinking about interesting projects that could use this fascinating coordination technology and tie it to something very real. I've never been great with metaphors. I went to the most real thing one could, the dirt beneath our feet, land real estate, and actually backed into real estate as the thing that I thought would be in some ways most valuable to bring on chain, to make accessible, to bring the composability of blockchain to the stability of very real world assets, in this case, real estate itself. And so you were basically in certain.

of a hard asset that could be brought on chain? In large part, the founding story of Groma was a convergence of a couple of really interesting things focused on how can we take this tool, which will enable maybe six, seven, eight billion people across the world to coordinate and enable them to coordinate on something of immense value. And so I was thinking about what would be a very powerful thing to unlock. It's not necessarily true in every case, but real estate does tend to be one of the most foundational ways to build wealth. It tends to be one of the most foundational ways to build stability. It tends to be one of the most foundational ways to build stake. When you own a home in an area, you care more about that area. If you own a thin slice of a

region, you tend to care a lot about that region. All of these things felt very aligned and circled around enough that myself and a couple of X-Gropubx level uppers got together and decided to found Groma. So that took us a while to get there. Sorry for the preamble, but talk about Groma. What is Groma? What were you guys building? So the elevator pitch on Groma and the punchline is we are building a real estate backed cryptocurrency. And our goal behind that is to enable there to be a stable store of value, a stable media of exchange, a fully digital infrastructure and currency layer backed by the most real asset we could find underlying real estate, the dirt. beneath our feet, so to speak, and we believe on a 10-year horizon, probably like many listeners of the podcast, that the world needs access to lots of alternative currencies. We think many of those should be digital first. Bitcoin, ether, fantastic examples of that. We think they should

be non-fayot. Again, very important thing for global access. We think they should be accessible to anyone anywhere. But going back to my initial skepticism around some of the elements of Bitcoin, for me, it being backed by a real hard, productive asset was critical. And so our end goal is to enter into the ecosystem of all currencies and provide the world with a somewhat poetically like currency for the world backed by the world. It's one of these things that sounds very simple, but depending on how you approach either blockchain or real estate, I find that people get lost a little bit. And so what you are doing is explicitly putting a reet, a security on a blockchain. And we're not talking about some Terraluna scheme where there's some theoretical real estate in the background that's unpegged.

We're literally talking about taking a security here and just packaging it differently. Yes. So from a legal infrastructure perspective and a big business infrastructure perspective, Groma operates the Groma REIT. We call it a real estate innovation trust as opposed to a real estate investment trust. But it is a REIT just like for any listeners of the pod who are familiar with REITs, they are specialized corporation that owns true hard asset real estate. And so, again, I'm not great with metaphors. I'm not great with abstractions. The Groma reed owns interest in today 50 buildings. We tend to focus on multifamily residential real estate. And then the tokens, the Groma coins themselves, are one-to-one representations of shares. They are securities, as you point out, that represent ownership of

a fractional interest of that ever-growing real estate ecosystem. And that imbues the holder with not only a proportional value of that ecosystem, but also the potential for appreciation, also the potential for loss, and the potential for dividends, which we believe is three of the core hallmarks of what you might want a hard asset currency to be, something that is as flexible as any blockchain currency can be, but as valuable as a comparatively stable underlying asset could be. One of the things that you were talking about with reading the white paper and being skeptical, I confess that I read I just didn't understand broad swath of it. So that has always been my favorite thing about working in this industry is that it forces you to go out and understand

a lot of different adjacent areas, the history of money being a prime one. So maybe talk a little bit about that. Fiat currency is a fairly new phenomenon. So maybe to some who've only existed in the United States fiat system, this idea of commodity money just seems a little bit strange, but it's really not in the grand arc of history. And so this is maybe a great plug for anyone who's interested in a deep read on our take on the history of currency. We have a pre-published white paper, which I'd be happy to share with anyone if they email white paper at groma.com.

We'll share you a preview. It's very well put together, but not quite ready for prime time. But a big part of that is we look as far back as we can at the history of money. And my favorite story in this is the earliest currency we could find is the shekel, not the Israeli shekel, but in this case, the ancient Samarian. Shekel 5,000 years ago. And that was a metal currency. It had metal coins, but the value wasn't the metal within it. That actually came later in society. This was a grain-based currency. It was a food-based currency. You could take the metal coins, go to the King's Grainery and trade them in for

an appropriate denomination of grain, because if you lived in ancient Sumaria, as many of us have from time to time, it was an agrarian economy. And grain was the core input to everything. that gave it a lot of value. Making your currency based on the core input to the economy is very, very powerful in a very abstract way. It's actually why the dollar works. In a somewhat less abstract way, land, real estate is the core input to almost every economic activity.

Even the most meta-metaverse needs a place for servers. Even the most exciting AI company running fully in the back end needs a place for their software engineers to sleep at night. And so we went right to the bottom of. Mazos hierarchy and said shelter, land is the core input to most things. If we can use a tool to fractionalize that, make it fungible, make it interoperable, sounds a lot like blockchain, then that might be the basis for a very strong currency over time. It's fascinating when you look at just all the experimentation that's happened in the blockchain space. So you have things like

Bitcoin, things like ETH that are these non-sovereign digital value stores. But pretty quickly, you had folks come along and just take US dollars and put them on a blockchain, a different type of value store. You've seen tokenization of gold. Do you imagine that we'll see value store assets, all types of different assets come to blockchains? I think we will. And they have lots of different use cases. And I think I'm about as capitalist to capitalist as one can be. I tend to think that competition and innovation drives the best outcomes choice is incredibly important. And so having a dollar, It's a great option to have. Having a euro is a great option to have. Having a crypto dollar is a great option to have. Having gold that is transportable on chain is a great option to have. And they have

marginally different use cases and sometimes wildly different use cases. We think that the more entrance into that, the better. I view ether as a compute-based currency. Groma will be a land-based currency. We've actually talked about this briefly. Agro token is a reinvention of a grain-based currency, now on chain. And the more of those that exist, I think the wealthier society will be overall because for 8, 9 billion people on the planet, there is no one right answer, but having access to all those different choices will enable people to optimize for what worked well for them. So within real estate, you started to focus on multifamily residential real estate. What was behind that choice? Why is that a good idea to back a currency?

So this is probably the part where I have to go from very high-level philosophical goals all the way down to the actual nuts and bolts dirt that we have to operate. It's a running joke within Groma. I suppose the first part isn't a joke. It's one of our conventions is this idea of pragmatic idealism. We want to build towards the future, but in very pragmatic incremental steps. The running joke is, if you want to build a real estate-backed cryptocurrency, you probably ought to be good at real estate to start. And frankly, probably help, yeah. Probably helps. And frankly, I was not. My background is really in technology. We've brought on board some amazing team members, Paul Bell, our chief legal and financial operations,

officer Michael Rosenstein, our head of real estate acquisitions, each have decades of real estate experience. So we broke the business into three phases. Phase one has almost nothing to do with blockchain, build a good real estate business. And so we spent the first two, three years of our business, of course, knowing where we were heading and building some infrastructure, but phase one was really, let's find a real estate strategy that is big enough to back a currency, has to be at least a trillion dollars. Maybe you can have a half trillion dollar currency, but we need a space that's at least a trillion dollars where we can use our skill sets to make it run better than others can and therefore build a flywheel where we can acquire a lot of real estate

and provide immediate value to our stakeholders, immediate appreciation, immediate distributions. That was a fairly complex thing to think through. We honed in on what sounds like an exceptionally narrow space. We call it the MUR space, modern urban rentals, two to 20 unit multifamily residential apartment buildings in dense urban cores. This is not a real estate podcast, so I won't go as deep on that, but very high-level core stats. This business looks a lot like the Grubbub business did. They're all individually operated, not all, but the vast majority of them, relatively inefficient

and could benefit from significant technological infrastructure to run these disparate small assets efficiently. We started getting quite excited about that. We're based here in Boston. Boston has 15,000, we call them triple-deckers, three-unit multifamily buildings. Nationally, there are between one and four minutes. million of these, almost zero institutional ownership running very, very inefficiently. We estimate that asset class to be between two and three trillion dollars in the United States alone. And we have built a real estate platform called the modern urban rental operating system, Muraws for short,

that lets us buy them, acquire them, upgrade them, and operate them very efficiently, producing strong cash yields and appreciation. We spent three years testing this out. We've acquired about $200 million worth of these assets all around the greater Boston area, works like a charm. It's a great real estate business and gives us the confidence to then move into phase two, which is continuing to scale that business, of course, but actually making them accessible on chain, turning the properties into NFTs, proof of reserves, show the assets we own, turning the shares in the Gromorit into tokens and beginning to enable new functionality that a traditional or reek just couldn't do. So this modern urban rental triple-decker strategy, it's really fascinating

that there aren't a lot of institutional participants. You would have thought that that would have been in an age of having single-family residential get institutionalized that this would too. But it's strange. It went the other way, which started with single-family. So really interesting set of occurrences, and this is deep down the real estate analysis, rabbit hole. And to your point, a fun thing about this industry is you have to know several different industries in order to make anything work. Our take on the reason that the MUR space is still nascent, whereas the SFR space is pretty institutionalized is really around the impact of the global financial crisis. If you look back 12 years, in 08, there was just huge obliteration of

single-family home wealth, and that caused a lot of foreclosures. And that suddenly meant an asset class was exceptionally cheap. Institutions went in and really built the single-family rental market. that didn't happen in the small-cap multifamily market, the 2-20 space. There was damage, but it wasn't the same damage. And it didn't happen in the institutional large multifamily market because they're big operators and were able to power through. Now, if that was the GFC, I think we're now in the after effects of the CFC, the COVID financial crisis.

And interestingly, and perhaps very healthily, there was a lot of support for single-family owners. There are functionally zero foreclosures of single-family homes. Obviously, there are some, but compared to 08, it's fractional. reasons connected to that, single-family home prices have stayed stable or maybe even gone up. The large institutions, again, are large and have been able to power through. But this middle sector, we're now seeing a lot of softness there. And we don't want to be predatory in the way that I think many single-family operators get

branded. Our take is we can run these buildings more efficiently than a small owner, but own them with us. The whole point is one mega-rete, one blockchain-powered real estate innovation trust, where we can operate efficiently. We are a centralized operator at the moment, though that might decentralize over time. And we want you to be part owners with us, whether you are the previous owner of the building, leave some stake with us, whether you are a renter in our building, or frankly, whether you're a large institution and want to be part of the first digital asset real estate innovation system on chain.

So I guess an obvious question for someone who is not as steeped in how things like defy and public blockchain's work is, why do you need a blockchain for this? Why not just buy into a reet and hold a reed on a brokerage account? Totally. Well, first, I wouldn't get invited on the podcast in that case. There is an angle, right? There's an angle there. The short answer is for the first phase of what we're doing, just running modern urban

rentals well, you really don't need blockchain at all. That could just be innovation homes or Blackstone Reit, and you could run that really well. And frankly, that would be a great business. We consider it at a time, hey, let's just be a real estate operator and make a lot of money. It's not a bad business. to do phase two and phase three, which is really what we care about, we set out to build a real estate-backed currency so that everyone in the world could own part of the world around them, that starts to require blockchain. We use blockchain for three specific things. One is transparency.

We want everyone to know what their currency is made of. So if you go to groma.com, you can see every property we own, both online and on chain. We're on the Sipolia TestNet at the moment, and you can see title deed, ongoing performance of every asset. That is our proof of reserves. And then you can see the coins that you hold, the shares that you hold, and provide complete balance, complete accessibility into the ecosystem. We also do the traditional things, audits, showcasing our financials, but for those of us who are comfortable looking at proof of reserves on chain, this is as good as it gets. The next thing we can do is all around functionality. There are just things you can do with a security, a blockchain share, that you can't do with a

traditional digital security, and you certainly couldn't do with a paper security. My favorite analogy here is, say, we're going out to lunch, and you pay for lunch, but I've got to pay you back, and I want to give you a tenth of a Tesla share to pay you back for burger and fries, whatever it is. That is actually technically possible, but it would take two to three weeks, a lot of legal documents, probably a couple phone calls, and eventually I could, maybe I could send you a tenth of a share, maybe I just have to sell it and send you some dollars. With a blockchain security, we can all imagine how that is a very straightforward transaction. There are compromises that have to be made. We both have to be K-Y-Ced and AML, but then it's

as simple as issuing a transaction and watching that register through the ecosystem. So functionality starts to become unlocked. If you want a great greet, sure, do it as a traditional share. If you want a real estate backed currency, you have to build on a blockchain infrastructure. And then later on, we see composability as being a very powerful enhancement, enabling everyone to engage with that type of real estate backed stable coin, whether it be for lending or borrowing or even giving renters the ability to turn their rent stream into leveraged ownership. That's far off for us, but all of those phase two and phase three things would only be possible on a blockchain layer. And that's why we invested heavily in that from day one.

The composability to me is going to be the biggest part of this. And when you look at just what Defi has proven in terms of the types of financial transactions that you can do, you don't have to squint too hard to see that this is going to change everything, in my opinion. And so it's hard for people who have not actually used some of these primitives, but one thing I've been wrestling with is, and maybe this is just a tactical example. Let's say that you needed to pay a contractor to build a fence in your backyard and you didn't have the cash in your account, but you had shares, you had Ethereum or Bitcoin. Things you can do in Defi right now would be to pledge those into a pool, into a compound or an Ave, immediately get USDC and immediately make the payment. It's

almost like a securities lending style transaction at microscale with zero intermediaries. It's fascinating. It's fascinating. And I think a fundamental theme of all blockchain projects is democratization and decentralization. So many of these things that we describe, and I think this is why you have a lot of trad-fi people look at the blockchain world and say, well, what's so special about this? Well, if you've got a $200 million real estate ecosystem, you can do exactly what you described. People do it all the time. You phone up mortgage Stanley, you fold up Goldman Sachs, and you say, pledge my $200 million of real estate, can I borrow $140 million against it? And they say, sure. If you've got one building, you can do that. There's mortgages that exist for that.

If you've got a fraction of a building, you really can't. It doesn't scale all the way down because there are transaction costs, there are intermediaries. But that type of, I think the technical economic term for this is a DeSoto asset, an asset that you can use to pledge and borrow against is one of the core things that enables people to build wealth over time. Keep your asset, borrow against it, and use the capital when you need to. The fact that that isn't accessible to ever in the world is probably one of the big drivers of inequality. Taking real estate, putting it on chain, making that accessible to ever in the world is going to enable a lot of good. It's going to turn every renter into an owner, that is our dream, and give them liquid real estate that

when they need short-term cash, they're not phoning up a banker and going through an application review that might be fair or might be unfair. They're just pledging it on chain, borrowing from a network of ecosystem providers, and using whatever short-term cash they need and paying it back programmatically as they can. Stablecoins have really proven that this international thing that you're asserting is true, by the way, because what is the product market fit for something like a tether? It's people outside the United States that want to hold U.S. dollar exposure, but cannot otherwise access the U.S. banking system. And so they are going through hoops to try to get that exposure. I would imagine at some point in the future that will extend to all different types of assets.

I think so. And I think obviously we're reading from the same book here, but the fact that the U.S. isn't the most pro-crypto country in the world is a shame. I think we will get there. Probably going to get the quote wrong, but I think it's a famous Winston Churchill quote that America eventually does the right thing after trying every wrong thing first. We will get there. But part of the reason why we're not there yet is we live in a really blessed society where the dollar works amazingly. We believe our currency is stable. I personally have significant concerns about that. I can list two trillion reasons each year why one might be concerned about dollar stability over time. But because we are blessed by that stability, we don't see all the value of these use cases.

My family is originally from South Africa. The Rand is one of these currencies that has gone through serious fluctuations and wealth has disappeared. Just to the north, the Zimbabwean dollar is the famous example of high. hyperinflation, or one of the famous examples, but it happens all over the world. And Turkey, Argentina, Venezuela, these are all major countries. And it does happen and having the ability to flex into an asset that is digital, portable, non-fayot, rules-driven. And for me personally, asset backed, is good for global stability and commerce over time. The regulatory piece of this I want to get into a little bit and maybe even just jump to the tactical, how do you actually get this to happen? What are the steps that

that need to occur both on the non-blockchain side and maybe walk us into how this happens on a blockchain. So lots of domains to make a project like this happen. The securities regulation part is a particularly fascinating piece of the puzzle. We talked a little bit about real estate and we're making great progress there and feel confident in it. We've talked a little bit about blockchain. Our CTO, Jason Erden, is an expert in the space and has built the early phases of what we think is a very scalable infrastructure. And then Paul Bell, our chief legal and financial officer, is really a securities expert and a Groma coin is a security. We had to make a choice up front. Are we going to work to make this something that could be fully permissionalist?

And frankly, I'm a pragmatic idealist, but idealist is in there. I would love to have a permissionless form of commerce. Or are we going to accept that it's a security, make the necessary compromises, and go through the regulatory process to do that in a compliant fashion? As you know, we went deep down the second path, accepted that it was a security immediately, spent a lot of time working frankly as collaboratively as we could with the SEC to get feedback to make sure we're doing it in the right way. We had a good legal infrastructure to build off of because it is a reet on chain and a reach is an exceptionally well understood and regulated instrument. And so we basically did the work to keep all of the REIT requirements in place, keep all the security requirements in

place, but add blockchain functionality as a second layer. Plus side of this, we have total regulatory clarity. And we've actually had a very pleasant experience in working with the regulators to ensure compliance because mostly our answer is yes, we have read the rules and we will do what they say and we will do it using blockchain as an underlying technology, but we will comply completely from the get-go. It has also had downsides in that we've had to make compromises. That story of me paying you back for burgers and fries with a groma coin only works if you're KYC and AML in our ecosystem. Only works if we're also replicating that information in a traditional transferation, and those are compromises that we think don't totally undercut the long-term vision.

But in a long-term way, we'd love to not have those compromises either. We just view the path as get-scale, show real value to users, and evolve the law while being compliant at each phase over time. It strikes me that these assets, these securities are fungible, makes it in some ways quite a bit easier. There've been a lot of real estate blockchain projects over the years that are trying to tokenize a share of a hotel or a land parcel, that seems to me, A, is much harder from a regulatory perspective, potentially, but also B, maybe not the best way to raise a lot of capital

into a project. We spent a lot of time looking at should we tokenize individual assets. Definitely certain buildings are big enough that you could do that. We spent a lot of time looking at should you tokenize regions? Should there be a Boston-based currency? The running joke for this would be, it's not the Swiss franc, it's a Fenway Frank. and you just have access to Boston, should there be a New York-based currency? We also thought about should it just be as diversified real estate as we can make happen. Obviously, we ended up on the third path. We ended up on the third path in large part, and it's a bit of a stretch analogy,

but we view land as the layer one of the economy writ large. It is the input to everything, and so the more you can diversify and fractionize that and then make it fungible and tradable and composable, that's a really stable base layer for a currency, anything that minimizes the diversification potential, we think moves it away from being a fungible global currency. And so I've stayed very deep on that path. With the caveat, one has to be accurate to where we are in our growth curve. Today, Groma is really Boston-based. So it isn't a currency for the world backed by the world. It's a blockchain-powered reet with exposure to Boston,

but we will scale the strategy to other cities. And our end goal will be that all the tokens are always fungible across the full ecosystem. That makes sense. Now, maybe just double-clicking on some of the regulatory sides of this. So how do you actually raise capital into these vehicles? I know there's all sorts of regulations, reg D, reg CF. How does this actually work? So we spent a lot of time analyzing what our path to being as accessible to everyone as we would like to be is. And again, today we're not accessible to everyone. Today, Groma, RET is only accessible to accredited investors, though we're in the process of testing the waters for a reg CF launch, a reg CF being reg crowdfunding. The path that we took was

start small, iterate. We started with the Groma Rite as a private, non-traded 506B private offering. 506B, for those who aren't as familiar with the numbers and the letters, is basically private offering, no general solicitation accredited investors only. So Gromoreet really started friends and family. Luckily, I'm blessed to have a really nice family that puts up with me and a lot of friends and colleagues who've done well with me over time, so we were able to bootstrap effectively. We just moved into 506C recently. That is still a good. accredited investors only, still a private offering, but allows us to generally solicit. It allows us to actually market and tell our story. So we just launched this week a great partnership with

a marketplace called Republic. And there's an alternative assets investment platform. So if anyone's interested, if you go to republic.com slash groma, you can read all about us. And it's the Groma Rit. It's still a credit investor only, but now it is much more accessible, much more available. Our next step will be testing the waters today. We're testing the waters for a reg crowdfunding launch. that would let us do all the things we're doing now and also open it up to non-accredited, i.e. community investors, not quite everyone, but much closer to everyone. And then eventually, eventually, there are steps you could take beyond that to open it up to multinational investment, an even broader array of people. And it is a slow, difficult, regulatoryly complex and

legally expensive path that we have taken. But it works, it hangs together. It enables us to do what we want. and we can sleep easy at night because we know that all of the rules that intersect to operate this type of business are being followed while we're still able to provide value to each end user. It's one of these things where you have so many banks and broker dealers that would like to be in this tokenization game. They would like to transact in blockchain-based assets that are securities. We don't necessarily yet have explicit regulatory clarity on certain things, despite the fact that there are SEC commissioners, Hester Peres, comes to mind as explicitly calling out what needs to happen. So defining a good control location for a digital asset security comes to mind.

Just broadly speaking, what is your take on what is happening as it relates to the securities regulator in this country and how hostile they've been towards this industry? That one's, I think, a little bit of a toss-up and also a dangerous territory to wait into. So my broad take is it is a great feature of America that you have this incredible disagreement even within monolithic organizations like the SEC. You've got Gensler on one side. You've got Commissioner Perce on the other end, a spectrum of other commissioners in between. And I think that the fact that there is healthy debate going on and sometimes even quite

spicy debate going on in public between people who work for the same organization is just a great feature of modern democratic capitalist society. obviously I'm on the side of Commissioner Purs. I think the rules here could be improved, could be made clear. No one, not no one, but the vast majority of people that I speak to in the crypto space are very comfortable with an appropriate level of regulation. No one's trying to trick anyone. Again, obviously some people were, but none of the good actors are trying to trick anyone

and having sensible, clear regulation that enables innovation in this country. I think you would have 99% of the community say, that's awesome. We will follow along with the rules and let's go. build. I am really hopeful we will get there. Obviously, Gensler creates a series of roadblocks. We have found a way to build what we're looking to build by just accepting that it is a security, but there are certain things we would like to do on chain that won't be possible until the regulatory environment changes. Today, for example, very expensive. We run a traditional transfer agent with Apex Group, and we run a duplicate of that on chain as shares move around.

The transfer agent is viewed as canonical. To me, would I trust an on-chain public, immutable record of my shareholdings or a dusty old Oracle database in someone's basement? I'd rather have it on-chain, but today it does have to be both, and that's just the cost of an unclear regulatory environment. The transfer agent category writ large, it's hard to see that being around in 20 years. Can't imagine it. There are all these categories. ACATS is another one. ACATS is the process by which you transfer assets between brokerage firms when you do a transfer

or you close down one account, open another. If you just have a blockchain. Yes, much easier to audit, much easier for anyone to see what they own, much harder to defraud. I think it's all things that the SEC buy their mandate should love. It promotes and protects capital formation. Obviously, we're not quite in that world today, but I'm hopeful we'll get there. One of the cooler aspects of this, if you think towards what this could look like in 10 years, is really around the communities that you could build as you're doing this modern urban rental in different cities, doing the strategy, the idea of getting renters to actually participate in the ownership of the REIT. Talk about how you're thinking about that part of it. So there's a lot of elements to

what a real estate back currency could achieve, but this is probably one of the most important ones, which is the design of currency matters and the second order effects of currency matters. If you have a gold-based currency, you're going to have a lot more mining. If you have a compute-based currency, you're going to have a lot more compute, and that can be good and bad. If you've got a Fiat-based currency, you're going to have a lot more government, and that can be good or bad. If you have a real estate-based currency, A, you're going to have a lot more real estate being built, and that's generally a good second-order effect, only real estate that can be useful, gets underwritten and gets built, and you're going to have a lot more people owning the real estate around them.

Right now, plus or minus half of America owns, half of America rents. You have more stake in your city, in your state, in your country, in your environment. when you are an owner, and that has really good knock on effects. Knock on effects for social goals like wealth equality, knock on effects for broader goals like people becoming more involved in their communities. I care about this traffic stop or that park because I don't just own this one plot of land where it might be good or bad for me. I own a thin slice of Boston, and so I care a little bit more systemically about Boston.

It's also good financially. As a property operator, I mean, we have well over 1,000 people living in Roma buildings. I can tell you the best renter in the world is the renter who owns even one share in your ecosystem, even one Groma Coin, because the difference from zero to one is huge. They are not a consumer of the product anymore. They are a co-owner of it with us. Over time, you could imagine really powerful things that benefit not just Groma Coin holders financially because the renters are aligned, but also the renters.

Moving in Boston is an expensive affair. First month's rent, last month's rent, broker fee, security. deposit. Groma, we don't charge a broker's fee. We do that directly. Our tech company so we can spread out last month's rent flexibly. But if you own a Groma coin, why do I need a security deposit? I wouldn't charge you a security deposit to live in your own home. And this is now your own home. Now, maybe that doesn't scale all the way down to one, but it's just one very visceral example of what aligned incentives does. This is not we own and you rent. This is we're operating an ecosystem that we all own and we all utilize, and that just can be a much more pleasant, profitable,

and aligned ecosystem over time. People fixing the light bulbs themselves and not calling maintenance? Totally. Or call maintenance if you need, but if there's trash at your home, you pick it up. If there's trash at a rental property, you might not. If it's your rental property, you probably will. And it goes all the way down. It's why you would never invest in a company where the team members didn't have equity stake

or, of course, aligned incentive matters. It seems natural to facilitate an environment where the people who are living in these buildings are also on the ownership side of that. And the more we can break down the barrier between rent or an owner, I think the happier, the more aligned society will be. And that becomes the basis for these broader visions like a real estate backed currency. Seth, this has been fascinating. We could definitely talk for hours. In fact, we have talked for hours about this, I guess. So I will call to action what you said about white paper at groma.com, is that? Yes. So we've written what we think is an awesome white paper. It's not quite ready for

prime time yet. But if you're interested in doing an early read and we'd love your feedback, if you email us at whitepaper at groma.com, g-r-o-ma.com. You'll probably hear back from me directly. And I'd be happy to share it with you and would love to get everyone's feedback. Awesome. And where can we send people for the website? So if you go to groma.com, g-r-o-m-a-com.com. You can read all about us and everything we're up to there. Well, thanks for coming on the pod. Thank you so much for having me. Thanks for listening to another episode of On the Brink with Castle Island. To find out more about Castle Island, visit castle island. Visit castle island.Vicc. Please go to On the brink dashpodcast.com or just click on the tab in our website. Thanks for listening.